Bitcoin and blockchain are relatively new technologies to most people. Many people consider Bitcoin the first successful and most popular cryptocurrency. While most people didn’t care much about Bitcoin when Satoshi Nakamoto introduced it, the popularity of this virtual currency has increased significantly.
Also, the demand for this electronic currency has increased globally. Many people frequent crypto exchanges, like bitcoinprime-no.com to purchase or sell this digital asset. But some governments are not happy about Bitcoin. Recently, many governments began restricting and banning this virtual currency.
Unlike previous technological advancements, Bitcoin affects and disrupts governments in a specific area they have controlled exclusively for a long time. And that’s the issue or money. Essentially, governments have always controlled fiat money, its flow, and circulation in their economies. Blockchain, on which Bitcoin and other virtual currencies run, is decentralized, meaning it’s changing this.
Central banks are no longer necessary when transacting with Bitcoin with this technology. What’s more, anyone can run a full node and produce Bitcoin. Peer-to-peer transfers enable people to transact without intermediaries.
What Prompted the Chinese Crackdown on Bitcoin?
China has cracked down on Bitcoin for years, saying it’s protecting its citizens against the financial risks that the cryptocurrency possesses. Overall, China has expressed several long-standing financial concerns that prompted the country to crack down on Bitcoin.
For instance, Bitcoin’s price volatility has been a significant impetus for the crackdown. The move began when Bitcoin’s price hit the $60,000 mark before dropping. The cryptocurrency’s price fell by over 40% in the next two months. Although the country has endorsed virtual currencies as investment vehicles, their irrational exuberance can cause retail investors significant losses.
Also, the country continues to crack down on Bitcoin miners because the virtual currency’s decentralization enables users to circumvent capital controls. Ideally, this possibility means people can have difficulties converting over $50,000 worth of China Yuan into foreign currencies annually.
Anyone can quickly purchase large Bitcoin amounts and convert them into foreign currencies without Bitcoin trade restrictions. And the fees for this trade are higher than the amount people part with when using bank transfers.
Another concern that even other governments have expressed is about energy consumption. The Bitcoin network consumes almost 70TWh annually. That means it uses more energy than Venezuela.
What Are the Impacts of the Crackdown on Bitcoin?
China’s crackdown on Bitcoin made the virtual currency more affordable. The crackdown halved the global hash rate after dropping the Bitcoin price over seven weeks. The network had low computing power, meaning adding new transaction blocks were easier. Bitcoin mining profitability initially fell during the China crackdown due to falling prices. However, some people left the Bitcoin network, increasing profitability.
To some people, China’s Bitcoin crackdown is suitable for the cryptocurrency’s network in the long term. Although Beijing pulled off 51% attack or control of the network, some people raise questions about the nation’s influence. Some people argued that Chinese miners might exploit Bitcoin’s network latency of the global traffic coming in via the Great Firewall.
Some individuals argued that China could attack the network for political purposes like undermining some transactions, deanonymizing users, tracking behaviors, and censoring Bitcoin addresses. Nevertheless, continued crackdown prompted miners to turn to overseas platforms to mine, trade, and invest in Bitcoin.
China is among the countries that fear Bitcoin and other digital currencies. However, its crackdown has not deterred people from trading this virtual currency. Some Chinese citizens trade Bitcoin on crypto exchanges in other jurisdictions. That’s because Bitcoin appeals to users more than even the Chinese government-issued digital Yuan.